On November 10, Deputy Minister for International Affairs at the Ministry of Finance and Economy (MOFE) Moon Ji Sung convened the third meeting of the Global Core Investor Consultation via videoconference to present the draft Roadmap for Shortening the Securities Settlement Cycle (T+1), announced on November 3, and gather feedback from global investors. He also provided updates on recent progress in foreign exchange (FX) and capital market reforms and listened to investors’ suggestions and concerns regarding practical challenges encountered during the investment process.
The meeting was attended by major global asset management firms, including BlackRock, Vanguard and Amundi, as well as the Asia Securities Industry & Financial Markets Association (ASIFMA) and the Global Foreign Exchange Division (GFXD). Representatives from relevant Korean authorities and institutions, including MOFE, the Financial Services Commission (FSC), the Bank of Korea (BOK), the Financial Supervisory Service (FSS), the Korea Exchange (KRX) and the Korea Securities Depository (KSD), also participated.
1. Presentation of the T+1 Settlement Roadmap and Investor Feedback
First, the KRX and the KSD presented the key elements of the draft Roadmap for Shortening the Securities Settlement Cycle (T+1) and its implementation plans to global investors. The government and relevant institutions explained that they plan to establish automated infrastructure for trading and settlement information and provide market participants, including domestic and foreign financial institutions, with sufficient time to upgrade their systems and operational procedures. The transition will proceed only after market readiness has been confirmed through at least six months of integrated testing.
The government also explained that it fully recognizes global investors’ views that automation of trading and settlement processes, adequate preparation time and testing, and improved access to Korean won funding should be in place before implementing a shorter settlement cycle. It added that, throughout the implementation of the roadmap, it would continue to seek feedback from global investors, identify potential difficulties in trading and settlement arising from the shorter cycle, and make necessary improvements.
Investors welcomed the government’s efforts to actively explain the roadmap and its implementation plans while continuing to listen to their concerns. However, they expressed concerns that the increased operational burden associated with a shorter settlement cycle could create practical difficulties in processing transactions. They also emphasized the need for continued discussions and improvements on matters essential to smooth implementation, including procedures for handling settlement failures.
2. First Domestic Investment Using the Offshore KRW Settlement System and Related Developments
The government also introduced the first case of a foreign investor investing in Korea through the Offshore KRW Settlement System, which is currently operating on a pilot basis. In late October, a Singapore-based financial investment firm opened a Korean won (KRW) account with a locally-based Registered Foreign Institution for KRW Business (RFI-K)*, converted local currency into KRW, and transferred the funds to Korea through the BOK’s international settlement network to invest in domestic financial products. The government noted that this demonstrated the new infrastructure for the internationalization of the Korean won could be used successfully for actual investment transactions.
* A foreign branch of a domestic bank or a foreign financial institution that has registered after meeting certain requirements to conduct KRW transactions overseas.
The government further reported that the number of RFI-Ks had increased from six to eleven since the previous consultation meeting on September 29. Major global financial institutions are expected to join the BOK’s international settlement network as direct participants* early next year, alongside the four Korean banks currently participating: KB Kookmin Bank, Shinhan Bank, Woori Bank and Hana Bank. Deputy Minister Moon encouraged overseas financial institutions to actively participate ahead of the network’s official launch in January next year.
* A bank that manages RFI-K’s omnibus KRW accounts in Korea and conducts final settlement through the BOK’s Korean Won International Settlement Network (BOK-WireInt).
In addition, the government explained that it continues to improve FX regulations to facilitate foreign investors’ use of the Korean won. Effective November 2, the annual threshold for prior reporting to MOFE on offshore KRW borrowing by Korea-incorporated foreign securities firms was raised from KRW 1 billion to KRW 50 billion. Domestic branches of foreign securities firms were also permitted to borrow KRW and foreign currencies from overseas under the same conditions as Korea-incorporated entities.
3. Addressing Concerns Raised by Global Investors
The government also explained that, at a meeting with major local custodians on October 19, it had conveyed difficulties faced by foreign investors, including the application of early cut-off times* to funds obtained through third-party FX transactions, and requested that custodians improve their operational practices to minimize inconvenience to investors.
* A practice under which an earlier remittance deadline than the standard deadline is required for third-party FX transactions, where foreign investors convert funds into KRW for
investment in domestic securities through financial institutions other than their domestic custodian banks, due to the time needed to verify and reconcile the converted funds for each
investor.
Investors positively viewed the fact that FX and capital market reforms were being put into practice, as demonstrated by actual investments using the Offshore KRW Settlement System. However, they noted that further efforts are needed to ensure the smooth application of the improved systems in actual investment transactions, including upgrades to financial institutions’ operational systems, improvements in certain transaction practices, and greater clarity in operational guidelines.
Going forward, the government plans to continue engaging closely with global investors through the Global Core Investor Consultation while regularly reviewing operational challenges and developing further improvements to ensure that the benefits of FX and capital market reforms are effectively utilized and felt by investors in their actual investment activities.
Please refer to the attached files.
